Hedge funds have slowed their shift into short position in
agricultural commodities, but not by much, maintaining in particular a negative
stance on livestock derivatives.

Managed money, a proxy for speculators, made their biggest
positive shift in three months in positioning in Chicago wheat futures and
options in the week to last Tuesday, according to data from the Commodity
Trading Futures Commission, the US regulator.

That said, the reduction of nearly 4,000 lots in speculators'
net short position - for a week which included the US Department of Agriculture's
first estimates for 2013-14 crops, including a relatively upbeat forecast for
farmgate wheat prices - still left the holding at a historically large 45,366
contracts.

In Chicago soymeal, speculators raised their net long
position – meaning long bets, which profit when prices rise, exceed short
position which benefit when values fall – to a five-month high of nearly 48,000
contracts.

And among New York-traded soft commodities, hedge funds
trimmed historically-high net short positions in arabica coffee and raw sugar
futures and options.

'Lowest since March 2009'

However they, overall, retained a bias towards increasing
short positioning, seen being encouraged by forecasts of bigger global output this
year, especially of corn and soybeans, but also of the likes of sugar and
wheat.

"Managed money reduced its net long position in the agri-commodities complex by 49,152 contracts to 145,460 contracts − the lowest level since March 2009," Rabobank said."This was the third consecutive week of managed money net long positions declining, falling a total of 327,043 contracts since the beginning of February."

The absence of conditions deemed either indicating El Nino
or La Nina patterns, which tend to cause weather extremes, has raised hopes
that upbeat estimates will, this year, be realised, and seen hefty turns to short holdings in agricultural commodities both in the week to February 12 and February 19.

In Chicago corn futures and options, speculators cut their
net long position by more than 13,000 contracts to an eight-month low of 52,000
lots.

Soyoil has taken the brunt of negative positioning in the soy
complex – with short positions often spread against long positions in soymeal.

Managed money increased its net short position in Chicago soyoil
by more than 28,000 contracts, the biggest bearish shift in positioning since
August 2011, and encouraged also by the weak prices of rival vegetable oil palm
oil, which on Monday looked set for its first positive close in nine sessions.

Bearish on livestock

But speculators were particularly acute in their bearish
positioning in livestock.

Speculators' net longs in New York softs, Feb 26, (change on week)

Cotton: 52,527, (-7,076)

Cocoa: 12,571, (-2,051)

Coffee: -23,103, (+5,351)

Raw sugar: -48,626, (+8,447)

Sources: Agrimoney.com, CFTC

They made their biggest bearish swing in Chicago lean hog
futures and options since December 2011, amid weak cash markets, undermined by
a loss of export demand from China and Russia, which have raised concerns over ractopamine,
a growth promoter.

In the cattle complex, managed money cuts its net long position
in live cattle, ie those ready for slaughter, to the lowest since October 2009.

However, speculators appear to have been caught out on their
short bets in cattle, with Chicago live cattle prices increasing since Tuesday,
encouraged by the disruption to supplies caused by US blizzards, which slow animals'
weight gain too.

Speculators' net longs in Chicago livestock, Feb 26, (change on week)

Lean hogs: 9,688, (-12,485)

Live cattle: 6,657, (-3,093)

Feeder cattle: -1,492, (-1,346)

Sources: Agrimoney.com, CFTC

Live steer and heifer prices increased $5 per hundredweight last
week in the cash market in Texas, the top US cattle-producing state, the biggest
rise since February 2012.

Historically-high short holdings often cause speculators to
think twice about putting on further bearish bets, in boosting the risk of a
spike in prices should a turn in the newsflow encourage a rash of
short-covering.